Part S51 is used in one of Haberkorn Corporation\'s products. The company makes

Question

Part S51 is used in one of Haberkorn Corporation's products. The company makes 12,000 units of this part each year. The company's Accounting Department reports the following costs of producing the part at this level of activity:

An outside supplier has offered to produce this part and sell it to the company for $37.70 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $17,000 of these allocated general overhead costs would be avoided.

The annual financial advantage (disadvantage) for the company as a result of buying the part from the outside supplier would be:

Multiple Choice

($39,800)

($22,800)

($149,800)

($5,800)

Per Unit Direct materials $ 6.30 Direct labor $ 5.70 Variable manufacturing overhead $ 4.80 Supervisor's salary $ 7.00 Depreciation of special equipment $ 8.60 Allocated general overhead $ 7.20

Explanation / Answer

Calculate The annual financial advantage (disadvantage) for the company as a result of buying the part from the outside supplier would be

The annual financial advantage (disadvantage) for the company as a result of buying the part from the outside supplier would be (149800)

so answer is c) ($149800)

Make Buy Direct material 75600 Direct labour 68400 Variable overhead 57600 Supervisor's salary 84000 Allocated general overhead 17000 Purchase cost 452400 Total 302600 452400

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